Vol.:(0123456789) Journal of Quantitative Economics https://doi.org/10.1007/s40953-019-00171-1 1 3 ORIGINAL ARTICLE Time Varying Efciency in Indian Sectors: An Event Study on Demonetization Samit Paul 1 © The Indian Econometric Society 2019 Abstract The study examines the level of inefciency present in three diferent sectors of India. More specifcally, it applies diferent estimation techniques to measure the level of efciency across the agriculture, service and manufacturing sectors by choosing twenty stocks from each of them. Since there are multiple industries belonging to a particular sector, capturing the intra-industry diferential in their ef- ciencies is also crucial. Presence of long range dependence and the time-varying efciency across the industries belonging to diferent sectors have been tested. Then, the impact of recent macroeconomic event of Demonetization on these industries have been explored using six event windows. The results confrm that the impact of this event on the industry returns are mostly negative and signifcant. However, the magnitude of impact varies across industries depending on the level of demand uncertainty and their cash dependence. Finally, the robustness of our fndings has been checked using fxed efect panel regression which further validates the results of the event study. Keywords Efciency · Demonetization · Industry · Sector Introduction Market inefciency plays a key role in the publicly traded capital markets (Fama 1970, 1991; Rosenberg et al. 1985; Stein 1989). It refers to the most observed phenomenon that the market takes time to respond to the new information fows. Conventional wisdom suggests that emerging markets sufer more from this mar- ket inefciency (Barua and Raghunathan 1987; Bekaert 1995; Bhattacharya et al. 2000; Mishra et al. 2009; Zunino et al. 2008). In other words, emerging markets do not react immediately towards new information and respond gradually over a longer * Samit Paul samit@iimcal.ac.in 1 Indian Institute of Management, Calcutta, Diamond Harbour Road, Joka, Kolkata, West Bengal 700104, India